Well, OG is certainly smart—a member in best standing of what the pundit class calls “the technocratic elite”: the people who oscillate between the public sector and the world of universities, think tanks, corporate boards, white-shoe law firms, and investment banks; who turn up postpaid at Davos and Aspen; who get the highest speaking fees. These are people who talk and talk and talk without much benefit to the ordinary voter. More important, few of them seem to have earned a living, once you eliminate schoolchild stuff like mowing lawns or selling Girl Scout cookies. They organize and appear on panels; they accrue consultancies and fellowships; garner talk-show/op-ed exposure.
OG strikes me as a prize example of the species—and that turns me off. I read him as a narcissist of a pretty high order. My battered Webster’s Ninth New Collegiate Dictionary refers the reader to “egoism” and “egocentrism,” which makes the point without needing to turn the page. If there’s anything in the known universe the guy appears truly to get off on, it isn’t “We, the people,” it’s himself.
But whether I dig him or not is of no practical concern to my immediate task. There’s no doubt in my mind that with enough early funding, a candidate as charismatic and exhortatory as OG can definitely put away Hillary, who exudes zero messianic glamour and whom nobody—whether they lean right or left—really seems to trust. Getting past her is the key. Outspending her is likely to be the tactic that will work best. After that, the White House should be a lock, especially if there’s a GOP-killing financial crisis. And you have to say that, given the evidence, this is also starting to look like a sure thing.
MARCH 9, 2007
I had lunch with Lucia today. It was obvious when she sat down that she was in a sour frame of mind. When I asked her what was wrong, she complained that she’d had to devote a good part of an already overscheduled morning—on Rosenweis’s direct orders—to trying to spin the Post’s “Page Six” gossip column about a ridiculous fracas in the Hamptons that involves an STST higher-up, a woman who was paid a $20 million bonus to come over from Deutsche Bank to be cohead of the firm’s Global Equities division. It seems that this woman, whom Lucia describes as a great business-getter but a “godawful” person, and her husband, a big-time Manhattan dermatologist, have gone to war with a neighbor, a hedge-fund stud with a new Russian wife and $12 billion Assets Under Management. At issue is some dune grass the latter party is alleged to have cleared out to make way for a path to the beach that runs along on the property line of the STST woman’s Amagansett McMansion.
I let her blow off on this subject, then asked what else was new on the Rialto.
“Well—this, for starters, also courtesy of Richard,” and from her cell phone Lucia read me the following e-mail:
From: Richard Rosenweis to Desk Chiefs: re: Axes: “Our current largest needs are to execute and sell our new issues—CDOs and RMBS—and to sell our other cash positions … I can’t overstate the importance to the business of selling these positions and new issues.
“Axes?” I asked. “What are ‘Axes’?”
“A term of art, dear boy. ‘Axes’ are what we call the stocks or other products that we are trying to get rid of because they are not seen as having sufficient potential profit and may even produce losses.”
“In other words, dumping your losers on your clients?”
“Preferably not, but if all the world’s your clients, that’s a problem. Then there’s this, passed along by one of my trading-desk spies.”
This one was from Sam Monday, cohead of International Trading, to an associate. The message was direct: “Boy, that wolferine deal was really shitty.”
“What’s ‘wolferine’?” I asked.
“ ‘Wolverine,’ you idiot! You know perfectly well that most of our MBAs can barely spell their own names. It’s code for some swaps deal our Singapore office has unloaded on some poor little hedge-fund lambs in Auckland. Wolverine only closed last month, but already it’s in its death throes and looks as if it’s going to take the dear, sweet, naïve, trusting Kiwis down with it.”
She showed me another e-mail, this marked “Confidential” and signed by the firm’s ace market strategist:
We … remain as negative as ever on the fundamentals in subprime, but the market was trading VERY SHORT, and was susceptible to a squeeze. We began to encourage this squeeze, with plans of getting very short again after the short-squeeze causes capitulation of these shorts. The strategy seemed doable and brilliant, but once the negative fundamental news kept coming in at tremendous rates, we stopped waiting for the shorts to capitulate, and instead just initiated shorts ourselves immediately.
The object is to cause maximum pain for existing holders of credit insurance. We should start killing the … shorts in the street; this will have people totally demoralized.
“Pretty stupid to put that on e-mail,” I said. “How confidential is ‘Confidential’?”
“Perhaps three or four hundred people—not counting hackers.”
“What about the Braum doctrine that ‘e’ stands for ‘evidence’?”
“If we’re lucky, we can bury it before the SEC gets a whiff.”
Strolling back to the office after lunch, I once again thanked whatever gods may be that I don’t have her job.
APRIL 8, 2007
Mankoff is starting to look prescient. A week ago, New Century, the biggest subprime mortgage mill in the country, filed for bankruptcy.
He and I talked about this a bit on the way to a meeting at the Morgan Library about a trove of eighteenth-century French musical manuscripts that the museum has its eye on. Time is of the essence. Another big Wall Street hitter is rumored to be looking at the same collection for Juilliard.
According to Mankoff, the Federal Open Market Committee, the star-chamber group that sets Federal Reserve monetary policy, refuses to buy the notion that anything’s rotten in the state of Subprime. Either that or they simply can’t face the fact that they’ve allowed the situation to get out of control. Apparently Bernanke and his colleagues, with one or two exceptions (most notably the guy from the Dallas Fed, whom Bernanke can’t stand, and vice versa), sit around fiddling with their algorithmic models like kids playing Legos, while the rockets’ red glare lights up the financial landscape outside the window. This intelligence—obviously from a mole inside the Fed—has encouraged Mankoff to step up the tempo of STST’s beat to quarters.
MAY 18, 2007
Last night the phone rang just as I was getting ready to watch Jon Stewart. It was Mankoff.
As usual, he got right to the point.
“You know what the Bohemian Grove is, right?” he asked.
“Natürlich,” I replied. The Bohemian Grove is the summer encampment staged by the Bohemian Club, San Francisco’s equivalent of the New York’s Century Association or the Garrick Club in London: originally started by artists and writers and other creative types but now pretty much taken over by investment bankers, academic politicians, and corporate lawyers.
The “Grove,” as it’s called by people who’ve actually been there and those who pretend they have, is held for two weeks every summer in a redwood forest the club owns on the Russian River, a hundred-some miles north of San Francisco. It’s one of those meet, greet, and pontificate confabulations that act as junction boxes through which pass the world’s currents of influence and interest: the Global Economic Forum at Davos is probably the best known, and then there’s the Council on Foreign Relations and the Clinton Initiative and the Aspen Institute, and Bilderberg, and Allen & Co.’s media jamboree in Sun Valley. “OK,” I said, “why this curiosity about the Grove?”
“Think you can get yourself invited?”
“I can try. Yeah, probably—there’s a guy I know out there who’s asked me before. Mind telling me why?”
“Orteig’s going to be there—from July 19th to the 21st. This may be our best shot.”
He explained that Orteig had been the feature attraction at a dinner that one of our hedge-fund clients had
held to drum up support for OG. Ordinarily Mankoff wouldn’t have gone—he hates those things as much as I do—but the host is a good client, and Mankoff reckoned he might pick up some OG intelligence that could be useful for our grand design. Which he did: in the course of cocktail-hour small talk, Mankoff learned that OG’s #1 is planning to attend Bohemian Grove in July.
The situation plays itself. If I can wangle an invitation for those dates, and then execute a neat bit of “managed serendipity” and accidentally on purpose happen to run into Orgeig … well, do I have to draw you a picture?
I told Mankoff I was pretty certain I could get myself invited. There’s a San Francisco lawyer who’s on the board of the de Young Museum, for which I helped work out a major loan of medieval and Renaissance tapestries from a Mexican media potentate. He has several times spoken to me about coming out as his guest to “the Grove,” which he speaks of with the same reverence with which an imam might speak of Mecca, but our schedules have never quite fit.
So when I got to the office this morning, I waited out the time-zone difference, then called my friend in San Francisco, and weaseled out of him the information that he’s planning to be up at Healdsburg for the entire Grove fortnight. I then fibbed that I would be on the west coast between July 19 and 21, so maybe this could be our year, for at least a couple of days. He was delighted at my news and suggested at once that I join him at the encampment. I blushed prettily, thanked him effusively, and called Mankoff’s office and had them lay on a jet for July 19, open return but no later than July 21. Game on!
JULY 19, 2007
It’s a little after 10:00 a.m., EDT, and I’m in a chartered Citation X at 30,000 feet climbing to 45,000, headed for California to see a man about an election.
The plane is on charter from Air Magus, which is owned by Merlin Gerrett; because of the longstanding relationship, STST charters exclusively with them. Please don’t get the idea that I routinely travel in this grand fashion. To have a private jet on standby is an integral part of Mankoff’s and my Orteig scheme. It did occur to me as I boarded at White Plains that when Morgan dispatched his “man” to Washington to talk with Teddy Roosevelt’s “man,” he may well have sent him by private railroad car. In those days, it would have taken as long to get from New York to Washington as for me to fly today from White Plains to Santa Rosa, the airport nearest the Bohemian Grove. Our flying time is estimated at four hours and thirty-two minutes, which allowing for the time difference will put me on the ground around noon PDT. From the airport to the Grove is a little under an hour. If all goes according to plan, by dinnertime I should have “bumped into” the object of my potential affection.
Things continue to deteriorate in the world of Big Money. A woman I went to Yale with, who now writes for The Wall Street Journal, says that the mood on Wall Street reminds her of the early days of AIDS, before HIV had been identified and people were confused about the causes of the disease and how to fight it.
The root cause seems to be that everyone’s got so much going on with everyone else, in all shapes and sizes, in all degrees of transparency, liability, and opacity, that when one gets sick, others must, too. We could be looking at a credit pandemic. Three days ago Bear Stearns shut down its hedge funds on short notice, which has led to rumors of a possible credit boycott of Bear. If Bear has a hard time rolling over their overnight borrowings, others will get dragged down. Trust will disappear, and lenders will insist on more and better collateral, but there probably isn’t enough paper available to satisfy these demands. As always happens, gimmicks are starting to replace credit judgment and good security. Take Citi, which is desperately trying to pare down its balance sheet, and has started to sell CDOs subject to what they’re calling a “liquidity put,” which allows buyers to sell the crap back to Citi if they can’t move it in the market.
Mankoff has been certain all along that Washington must sooner or later get involved: worst case, as a lender of last resort. Yesterday he got word that certain key aides are pressing his friend the Secretary of the Treasury to rein in the subprime market, which has gone completely Wild West. The problem is that an enforced slowdown—even a moratorium—on subprime origination and securitization would probably lead to a chain reaction that would require an outlay from either the Treasury or the Federal Reserve.
Washington’s trying to avoid that, and is seeking ways to prod the system into fixing itself, which Mankoff says is like pushing on a string. If there has to be a bailout, he told me the other day, he wants STST positioned to take profitable advantage of it—and he hinted that there may be a role for yours truly in that process. But for now, Orteig has our full attention.
Do you remember that old movie Zulu? It’s set in the 1880s and starts with a bunch of British soldiers at an outpost in South Africa going about their routine daily tasks when they suddenly become aware of a sound like thunder in the distance. This turns out to be a thousand Zulu warriors stamping the ground as they work themselves into a battle frenzy. That’s how Wall Street feels right now. There’s thunder in the distance, but is it big trouble or just weather? In the Battle of Rorke’s Drift, as the ensuing battle in Zulu was called, the most Victoria Crosses ever handed out for a single engagement were awarded. When the shit hits the fan on Wall Street, I doubt there’ll be many medals pinned on pinstriped lapels.
I like the deal I’ll be proposing to Orteig. The $75 million, leveraged in the way political dollars can be (Mankoff estimates 5–1, meaning our $75 million could generate $375 million in cash-and-kind campaign contributions), will put OG head to head with Hillary. As for our side of the trade, the brilliance of Mankoff’s concept is that it doesn’t involve secret understandings with Winters et al. He’s betting solely on past form, ego, ambition, and character to make sure that what Mankoff wants, Mankoff gets: Winters to make sure the White House sticks to a policy that puts Wall Street’s welfare above all others; Holloway to protect the banks; Brewer to neuter any eager beavers at Justice who have grand ideas of criminally prosecuting Wall Street executives; and a fourth name, Patrick Vollmer, to supply the halo. Vollmer is the man who dragged America out of the Carter stagflation of the 1980s. He wasn’t on the index card at Three Guys, but Mankoff has decided to secure the fortifications with an old CIA trick. At the Agency, we always tried to mask our shadier gambits by bringing in a front man of impeccable reputation and soaring self-regard. If there’s anyone who can still provoke admiration from more than one side of the aisle, it’s Vollmer. And word is that he’s dying to get back to Washington to try to undo the mess that Greenspan and Bernanke have made of monetary policy.
Sounds like a long shot, doesn’t it, to make a bet like this? Just remember Scaramouche’s remark about character and destiny. I’m confident of success. Orteig has to be a practical yet imaginative sort to have brought his man this far this fast. He’ll bite.
The captain just came on the speaker to tell me that we’re an hour away from starting our final descent into Santa Rosa. Gentle Reader, are you ready to rumble?
JULY 21, 2007
“Mission accomplished.”
That was the message I left on Mankoff’s voicemail an hour ago, as soon as we were wheels-up out of Chicago’s Midway Airport after dropping off Orteig.
I’m not going to bore you with the details of my forty-eight hours among the Bohemian Grove’s redwoods. What’s it like? Well, if you’re the sort who thinks it a mark of status to be able to watch a European prime minister take a piss on a sequoia, or to be able to tell the folks back home what Henry Kissinger “dressed down” looks like (a pretty gruesome sight), you’ll love the place. It’s funny. The official motto of the Bohemian Club is a line from A Midsummer Night’s Dream: “Weaving spiders, come not here.” But if you just sat back and watched the goings-on among the giant redwoods—the sucking-up, the deal-seeking, the obvious social calculation—you’d conclude there’s nothing but arachnids on the make (including yours truly) all baked into a gigantic pastry of self-congratul
ation. Think Davos with trees and you’ve got the picture.
I went right to work, and it took just a bit over an hour for carefully planned happy coincidence to cause me to be introduced to Homer Orteig at an afternoon function.
He’s a guy of middling height and weight, whose sleepy, heavy-lidded eyes and old-fashioned brush mustache are the distinctive features in an otherwise uninteresting face. Not someone you’d notice even in a small crowd, but take a second, closer look, and you’ll see that here’s a guy to watch out for at the weekly Friday poker table at the Lions Club. I knew him to be a couple of years older than me, a longtime Chicago lawyer, sometimes professor of law at the University’s downtown campus, and an established Cook County political insider, notwithstanding that the word on him is that he’s a total straight shooter; I sized him up at once as someone I could do business with.
I contrived to run into him again at cocktails at Mandalay, the fanciest of the camps. By the second Ramos Gin Fizz, we were fast becoming new friends. I’d done my homework and played the right Chicago cards: sympathy concerning the Cubs and Bears, hatred of the White Sox, enthusiasm for the Second City, Steppenwolf and the Lyric Opera and Mies van der Rohe’s Lakeside towers. My research had established that his favorite hangout was a North Side deli called Sonny’s, so I told him that I’d heard it compared favorably in the smoked meat department to Katz’s down on Houston Street. Then I threw in my love of the novels of Patrick O’Brian and Gilbert and Sullivan. By the time I finished, we agreed that we seemed to be kindred spirits, and wasn’t it good luck that we’d met?
Fixers Page 8